There is a growing movement to consider compensation, benefits,
equity and other perquisites in aggregate as part of the overall employee
total-rewards package. In conjunction with this, companies are looking to align
these newly defined total-rewards philosophies with the broader employee value
proposition and overall business objectives.

By Alex Young-Wootton

Wednesday, May 29, 2013

Today,
many organizations are battling a strong global economic headwind, where the
war for talent remains fierce. HR is under more pressure than ever to maintain
competitiveness by doing more with less, or improve competitive position to
stimulate growth, without materially increasing overall spends. With this in
mind, it is becoming more and more difficult for companies to differentiate
themselves on the traditional premise of better pay or better benefits due to
the cost implications on the overall business model, and this is impacting
organizations' ability to recruit the best talent.

Companies
are forced to rethink their employee value proposition and consider alternative
-- sometimes creative -- approaches to rewards in order to attract and retain
top talent while adhering to their restricted budget constraints.
In particular, for multinational companies, seeking an optimal balance between
global consistency, regional similarities and local appropriateness makes the
optimization challenge more complex.

For
many years it has been the expected norm to provide a robust rewards package
focusing on "foundational rewards” such as base pay, bonus, pension, core
insurance benefits and locally applicable leaves and allowances.

The
concept of putting both benefits and compensation under the banner of Total
Rewards -- where these elements are considered in conjunction with each other
-- is not a new one. It has, in fact, been around in one guise or another for
more than 30 years, however there is renewed vigor around its application. This
new energy is manifesting itself in a multitude of ways.

In
recent years, companies find themselves in leaner times, facing an economic
shift that brings with it increased pressure to maintain, or even reduce,
overall HR spend, while remaining competitive. They have also been asked to
expand operations in new territories where growth is the primary driver. This
presents a complex challenge to a global HR function; especially given they are
operating in a world in which the actual cost of providing benefits in
particular is increasing. This shift has been responsible in part for the drive
from defined benefit plans to 401(k) retirement plans as well as consumer
driven healthcare plans in the US. Similar shifts from defined benefit to defined
contribution have been seen in Europe and in many cases, the rest of the world.

Cost
increases aside, the challenge is that the global war for talent remains hot
and the key talent scarce in most markets. In China and India in particular, we
are seeing that key talent is both hard to find and even harder to keep. It is
not just emerging markets that have this challenge. For many skilled positions,
such as engineers, companies are competing for this talent all over the world.

This
poses a real challenge for companies, as they must first compete for this
talent and, once recruited; retain employees for the long term, all with a
lower overall rewards spend. The result of this change has been a gradual shift
in companies' focus on the provision of rewards to their employees in several
key aspects:

Understanding
what drives your population: It is more important than ever to fully
understand what drives your employees, what they value and what is important to
them. Companies are beginning to analyze this from a quantitative perspective,
to understand the specific effects on employee engagement and perceived value
for every extra dollar spent in a specific area.

Armed
with this information, companies can make strategic decisions on where to focus
their rewards spend to maximize the value realized by employees, and yet remain
in line with the overall corporate business strategy. They can reduce overall
spend in areas that will hurt employees the least, while increasing spend in
areas they will value the most. They can also selectively provide access to
certain reward elements only to groups of people for which they will get
maximum appreciation for minimum cost.

As
they look at this concept more closely, employers are also finding that they
either have access to some of this information already or, by virtue of
engagement studies, have a ready-made vehicle to collect this data quickly and
easily. With the right questions asked in the right way, it is possible to
build survey content that can assist in gathering preliminary reward preference
information across the broad suite of rewards offered.

Increased
focus on appreciation: It isn't just about offering the right benefits to the
right employees, the right benefits may indeed be being provided but, if not
fully appreciated, much of the value is diluted. Many recent surveys around
employee appreciation for example, demonstrate that companies are not receiving
full appreciation value for the rewards they offer, because employees either
don't understand the value of the benefit, or in many cases, aren't even aware
they have it.

In
a recent survey conducted of Chinese companies, more than half of companies
surveyed spend more than 20 percent of total payroll on benefits, but of the
employees surveyed, more than half were not aware these benefits existed. These
statistics are fairly representative of Asia-Pacific as a whole, and although
awareness is better in the US and Europe, there is opportunity to improve
across the world.

Whether
achieved through stronger and targeted communication, participation in
selection of rewards or cost sharing with employees on some level, increasing
employee "buy-in” on their rewards is an important focal point for
increasing appreciation for employers and employees.

A
targeted flexible approach: In some countries, there is an increased
focus on allowing a degree of "choice” in specific benefits elements.
So-called flexible benefits are a regularly occurring phenomenon in parts of
the Western world; however, it is a concept very much in its infancy in parts
of Asia. It represents an opportunity for companies to tailor offerings to
employees and, consequently, get better appreciation, while all the time
potentially reducing or maintaining overall spend. This opportunity does,
however, need to be balanced with the possible additional administration
complexities involved.

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By
offering increased choice, rather than focusing too much on benefit levels,
there is an opportunity to differentiate simply by changing the benefits
themselves, or just the way they are offered, rather than potentially needing
to inflate the spend on these benefits.

Supplementing
foundation rewards with lifestyle benefits and other perquisites: There are many other
elements of the employee experience that individual's value, but may not
typically appear in the Rewards discussion. These may include things like
flexible work hours, home office, on-site facilities (such as daycare, gym,
restaurants or dog-sitting) or wellness programs. Some of these have a cost,
but some do not. These lifestyle benefits provide a new and interesting array
of areas in which companies can seek to differentiate themselves in the total
rewards space.

We
are seeing upticks in both the provision and communication of these
"lifestyle” benefits, benefits also frequently cited by employees at
companies deemed to be "Best Places to Work.” In Silicon Valley, for
example, many employers provide extensive on-site "campus benefits”,
designed to keep employees on-site longer, targeted at maximizing productivity
by creating a complete and engaging work environment that employees don't want
to leave.

In
considering these benefits, companies can manage costs effectively by spending
their rewards dollars more innovatively and gaining differentiation from others
in that manner.

Aggregation: However these
elements of rewards are considered, the overall focus is clear: there is
renewed energy on considering all of these as part of the overall employee
value proposition and in particular, in a total rewards context.

Companies
are realizing that, just because they are where they want to be versus the rest
of the market on both benefits and compensation, it does not mean the same is
true when the two elements are aggregated. Given the pressure to reduce costs
and remain competitive, or continue to grow without increasing costs, there is
new determination to consider compensation, benefits, equity and other
perquisites in aggregate as part of the overall employee total-rewards package.
In conjunction with this, companies are looking to align the provision of these
to newly defined total rewards philosophies with the broader employee value
proposition and overall business objectives.

Whether
it be to cut costs and retain perceived value, or increase value to promote
growth, many companies are reconsidering their employee value proposition and
total rewards philosophies globally to incorporate these opportunities.
Off the back of regular engagement surveys, or through more robust
conjoint analyses, new data is being collected to better understand what
employees truly value and prefer. From this, an aggregated approach to total
rewards, aligning to overall business strategy and optimizing reward spend is
the end goal. This is coupled with seeking an appropriate balance between
gaining the right levels of global consistency, while maintaining local
appropriateness within countries and specific groups of employees in those
countries so as to optimize total-rewards
spend.

Alex
Young-Wootton is a San Francisco-based director in Towers Watson's
international consulting group.